Neoclassical economics is a discipline that is hollow at the core, finds Neil Faulkner, reviewing Philip Mirowski’s important demolition of neoliberal dogmas

Neoclassical economics has failed as an academic discipline in every conceivable sense. It acted as a cheerleader to the casino-capitalism of the early 2000s as the biggest bubble in the history of the system was inflated. It failed to predict the 2008 crash, an event trailed by a long sequence of crashes punctuating the history of the system, from which, it seems, no lessons at all had been learnt. It was then unable to offer any remotely coherent explanation of what had gone wrong, and, in the five years of crisis since, has been equally unable to suggest any remotely rational response to what is, without doubt, the greatest economic disaster of all time.

How is this to be explained? It is simple enough. Neoclassical economics is not an academic discipline at all: it is an ideology. If you study history, you start with actual events and then try and explain them; if an anthropologist or sociologist, you collect data about the real world and then develop theories about how society seems to work; if researching literature or culture, your starting-point is novels, or poems, or plays, or films, or paintings, or graffiti, or some other category of material. This is not true of neoclassical economics. It works the other way round.

Neoclassical economists start with a theory. The basic theory is this: the best way to organise the production, distribution, and exchange of the goods and services required by humanity is to leave it all to something called ‘the market’. The essential corollary is that ‘the market’ should be as ‘free’ and ‘deregulated’ as possible, lest its smooth operation be de-optimised by ‘interference’ of one sort or another, which, the implication is, can only mean grit in the mechanism.

This theory is then applied to reality. If reality fails to live up to the high standards of the theory, so much the worse for reality. Like the French king who, facing a popular revolt, announced that the people had let him down and he would have to replace them with a new people, neoclassical economics announces that, when reality does not correspond to theory, reality is in the wrong.

This is not science. Science begins with the evidence and then seeks to explain it. With neoclassical economics, the evidence does not matter. The theory stands regardless, since the only significance allowed the evidence is the degree of its conformity to the theory.

Philip Mirowski provides a splendid little cameo to illustrate this disconnect:

‘I have been informed of a (tenured) professor of economics at my own school, spring 2009, who was importuned by some of his students to discuss the crisis that was then breaking out all around. After all, if you can’t examine and debate a current economic crisis in a macro class, then whenever should you expect to learn about it in a modern university? Yet the students were curtly informed that it wasn’t on the syllabus, and there was nothing about it in the assigned textbook, and the instructor therefore did not wish to diverge from the set lesson plan. And he didn’t’ (p.159).

Neoclassical economics provides a fascinating study in the resilience of fatuousness in the service of greed and power. When, at the dawn of the Industrial Revolution, Ricardo realised that labour was the source of all wealth, the vast majority of economists, faithful to the new capitalist order whose spokespersons they were, began a retreat into obscurantist nonsense. Only a minority remained committed to trying to understand how the real economy worked; the primary achievement of this lonely endeavour was, of course, Marx’s Capital.

Classical economics, meantime, continued to evolve as the ideology of the new capitalist class. Increasingly, it was little more than a crude justification for the greed of the rich. Unfailingly, it parroted the interests of the get-rich-quick spivs whenever the system blew a bubble, ever oblivious to the fact that a bust was coming, clueless about what had happened when it arrived, and always determined that the victims should be screwed even more to shore up the system.

As the system became ever more pathological, the disconnect between classical economics and social reality yawned wider. The Long Depression of 1873-1896, which classical economics could neither explain nor solve, was protracted but shallow. The Great Depression of 1929-1939, which classical economics could neither explain nor solve, was protracted and deep. It was this misalignment between the hocus-pocus of the economics profession and the real-life trauma of mass unemployment and societal breakdown that produced the ‘Keynesian Revolution’.

Its significance for us today is that Keynes proved theoretically what the dole queues proved in practice: ‘the market’ (whatever that means) is not self-regulating at all, but fully capable of producing a condition of permanent mass unemployment, that is, an enduring sub-optimal level of economic activity, or, in Keynes’s term, ‘an underemployment equilibrium’.

Rearmament and war ended the Great Depression. The dominance of the dollar, Cold War arms expenditure, and Keynesian state capitalism produced a sustained boom between 1948 and 1973. But the mystics of classical economics had not gone away. They were marginalised for a generation, often indeed regarded as little more than cranks, but, as Mirowski explains, they sustained a network of right-wing economists, ensconced in various university departments and think tanks, who worked together to influence leading members of the post-war Western political and business elite.

This was the germ of what we now call ‘neoliberalism’. Mirowski offers a thirteen-point definition (p.53ff.), much of it counterintuitive, since there is a contradiction between the formal ideology and the actual practice of neoliberal politics. Neoliberals claim to want to shrink the state and to deregulate business, for example; in reality, says Mirowski, they want a different state, one with less democracy and fewer public services for sure, but one that is at the same time underwriting big business, turning citizens into customers, criminalising the poor, and smashing protest.

Neoliberal ‘double-truth doctrine’ (p.68ff.) – propaganda for the masses, a hidden agenda for the gilded elite – is deliberately designed to insulate the inherent hideousness of the neoliberal project from democratic scrutiny. They regard democracy as at best dispensable, at worst iniquitous interference with ‘the freedom of the market’. Even knowledge – never mind the opportunity to act on it – turns out to be pernicious in the bizarre upside-down world of what Mirowski dubs ‘the Neoliberal Thought Collective’ (passim). Knowledge, you see, might tempt us to ‘interfere’ with the working of the market, thinking we know best, when in fact the market is the supreme information processor. You could not make this up. Here is neoliberal guru Friedrich Hayek:

‘Nor is the process of forming majority opinion entirely, or even chiefly, a matter of discussion, as the overintellectualised conception would have it … Though discussion is essential, it is not the main process by which people learn. Their views and desires are formed by individuals acting according to their own designs … It is because we normally do not know who knows best that we leave the decision to a process we do not control’ (quoted on p.78).

When the Roman general Pompey the Great entered the Holy of Holies, the fabled inner sanctum of the Temple of Jehovah in Jerusalem, he found an empty room. When you penetrate the layers of bunkum that pass for ‘thought’ in neoliberal think tanks and colloquia, you discover what? Nothing but an empty space: nothing but an invitation to believe that ignorance is virtue, on the basis that the market, the God of Capital, always knows best.

Yet Mirowski’s relentless exposure and ridiculing of the fallacies, absurdities, and self-contradictions inherent in neoliberalism is not the primary strength of this important book. Much of this can be found elsewhere. Indeed, though he writes elegantly and with wit, his text is perhaps not the easiest way to access a basic critique of neoliberalism. The language can be somewhat highfalutin, the references unfamiliar (perhaps they do not translate well trans-Atlantically?), and some of the over-clever allusions are surely too obscure? The book often makes what seem to me somewhat excessive demands of the reader, especially for a polemical book which might anticipate an activist, as well as an academic, readership. Not least, it is over-long; it could have been edited to half the length and lost nothing of substance. Nonetheless, the content is compelling, and the deeper argument important.

Neoclassical economics remains firmly entrenched in its academic fastnesses because it provides the high-brow ideological cover for the bankruptcy of the system, the greed of the super-rich, and the corruption of politicians who bail out bankers, cut wages, privatise hospitals, and persecute the poor. The real question is how they have got away with it. The answer is interesting.

The great Italian revolutionary and Marxist theorist Antonio Gramsci is not quoted or referenced. Yet Gramscian concepts, of ‘civil society’ and ‘hegemony’, are implicit in much of Mirowski’s text. His argument is that neoliberalism is not simply an economic theory and a programme for restructuring capital and the state. It has sunk deep roots into society, seeking to transform social life as a whole, indeed the very way in which individuals think about themselves and their relationships with others. It has sought to destroy any sense of society as a collective, and to replace this with a sense of it as an amalgam of atomised, isolated, vulnerable individuals. Mirowski writes of ‘the rise of the neoliberal agent’ in a world where the distinction between economics, society, politics, and culture have all broken down, and everything has become crystallised into two primary entities: ‘the market’ and the ‘entrepreneurial self’ (p.105 and passim).

This is important stuff. It is about the mindset of modern humanity that underpins such phenomena as falling union membership, alienation from ‘politics’, suspicion of all ‘organisation’, and a generalised tendency to individualise problems, seek personal solutions, and remain oblivious to the social character of exploitation and oppression and the consequent need for collective responses. This leads back to the central question: how to explain the durability of neoliberalism despite its obvious empty-headedness and its transparent failure as a guide to social action. Mirowski’s answer is that neoliberalism is now hard-wired into the psyche and everyday behaviour of the mass of humanity.

Never Let a Serious Crisis Go to Waste is an insightful and highly relevant social critique from a radical historian and philosopher of economic thought. For that reason, it is often a joy and a tonic to read. However, as with all such dystopias, we are left deflated by a sense of powerlessness. The people are present only as manipulated, brainwashed, ‘neoliberalised’ victims of an all-powerful corporate juggernaut. They are one-dimensional idiots; consuming pointlessly, obsessing about lifestyle, gawping at celebrities, gazing blankly at moronic TV game shows, forever grasping towards the next, vacuous, artificial ‘want’ created by Global Gobble Corporation. It is, of course, a profoundly undialectical view of humanity.

It was not Gramsci’s view. He understood the deep ideological defences of the system; the ‘hegemony’ achieved by the way in which its values had saturated ‘civil society’. But he also knew that an alternative worldview arose organically from the experiences and struggles of the common people, or at least that the building-blocks of such a view arose, and that these could be assembled into a comprehensive mass understanding of social reality through engagement in an ideological ‘a war of position’.

We are engaged in such a war. Every protest, strike, and mass demonstration is part of that war of position; so is every anti-austerity or anti-war meeting, and every gathering of activists to plan next step in the struggle to change the world. Mirowski’s book is a contribution to understanding the enemy. But we should not be deterred by its implicit pessimism. It should be read as a clarion call to resistance.